Asia Stocks Rally as Soft US Inflation Data Dials Back Fed Hike Bets

Global Mood: Cautiously Risk-on
Drivers: Iran Talks at Total Impasse, Ukraine Strikes Novorossiysk,  Soft US CPI

Asian markets turned risk-on Thursday, led by a 4% surge in South Korea’s Kospi and a 1.5% gain in Japan’s Nikkei, after softer-than-expected US inflation reinforced expectations that the Federal Reserve may keep policy supportive. US July CPI rose 0.1% month-on-month, in line with forecasts, prompting markets to cut the probability of a September rate hike to 40% from 54% a week earlier. 

Attention now shifts to US producer prices for further clues on the Fed’s policy path. However, gains were tempered by persistent geopolitical risks. Brent crude remained elevated near $88 a barrel as US-Iran negotiations stalled, with Tehran disputing Washington’s claims of control over the Strait of Hormuz. Separately, intensified Russia-Ukraine fighting disrupted Black Sea ports and grain infrastructure, pushing wheat prices higher and raising fresh global food-supply concerns. Overall, easing US inflation supported risk appetite, but geopolitical and commodity risks remain key constraints.

THE BIG STORY
Diplomatic efforts to revive the June interim deal collapsed entirely Wednesday as a senior Iranian source told Reuters there had been "absolutely no progress" on getting the US to return to the agreement and define a timeline for implementing its terms. Iran dismissed reports of a 60-day extension, saying no period had effectively begun given Washington violated the accord within 48 hours. Trump continued to claim total US control over Hormuz, a assertion Iran's newly established Persian Gulf Strait Authority flatly contradicted, saying the waterway remains closed until its conditions are met. With mutual compensation demands, sanctions disputes, and sequencing disagreements all unresolved, and both sides publicly trading barbs rather than concessions, the prospect of a near-term diplomatic solution looks more remote than at any point since the June accord was signed.

Ukraine struck Russia's Black Sea port of Novorossiysk in a major attack Wednesday, hitting three warships at the naval base and knocking two of Russia's largest grain terminals offline, killing at least two people including an eight-year-old child. Chicago wheat futures jumped around 3% on fears of supply disruption, with Russia the world's largest wheat exporter and its main grain lobby already warning of export collapse. The strike also threatened the Caspian Pipeline Consortium infrastructure partly owned by Chevron and ExxonMobil, though Ukraine agreed following a US request not to target CPC assets or non-Russian vessels. Ukrainian grain shipments have meanwhile collapsed 76% in the first two weeks of August as Russian strikes on Black Sea shipping intensify, with Ukraine and Moldova agreeing a rail rerouting plan to compensate. The simultaneous disruption to both Russian and Ukrainian grain exports from the Black Sea is adding a global food security dimension to a conflict whose energy and inflation consequences are already reshaping the world economy.

Data Spotlight
US annual inflation slowed for a second consecutive month to 3.4% in July, in line with expectations, as easing energy costs from the Iran conflict continued to drive disinflation. Gasoline prices rose 24.6% year-on-year, down from 26.7% in June, while core inflation eased to 2.5% from 2.6%. Monthly CPI rose 0.1%, rebounding from June's 0.4% decline, with shelter accounting for roughly two-thirds of the monthly gain.

US energy inflation moderated to 14.7% year-on-year in July, a four-month low, as gasoline and fuel oil price increases continued to slow. Monthly energy prices fell 1.5% after June's 5.7% decline, though piped gas and electricity inflation edged higher.

US crude inventories surged by 17.422 million barrels in the week ending August 7th, the largest weekly build since January 2023 and far above expectations for a 1.4 million-barrel draw, as net crude imports rose sharply. Gasoline stocks fell 0.968 million barrels while distillate stockpiles were little changed.

Takeaway: A second consecutive month of slowing headline and core inflation, alongside a record crude inventory build, point to a meaningful easing of energy-driven price pressures as the Iran conflict impact fades. The data materially reduces the urgency for further Fed tightening, though shelter and services stickiness keep the path back to 2% gradual.

WHAT HAPPENED OVERNIGHT

US stocks rise as in-line CPI and AI infrastructure earnings boost sentiment

• The S&P 500 gained 0.26%, and Nasdaq rose 0.54%, while the Dow edged down 0.04%, as benign inflation data and strong AI infrastructure results lifted risk appetite.
• July CPI came in as expected, with gasoline costs declining for a second straight month and underlying inflation remaining benign, shifting September Fed hold odds to 62% from an even split before the release.
• CoreWeave surged 19% after lifting its annual capex forecast and beating April-June estimates, while Super Micro Computer jumped 19% on above-estimate fiscal 2027 revenue guidance.
• Nvidia rose 3% and Micron added 4.9%, lifting the Philadelphia Semiconductor Index 2.5%, though it remains 15% below its June 22 record high.
• The VIX dipped to 14.45, its lowest since January, reflecting easing near-term uncertainty despite the ongoing West Asia conflict.
• A senior Iranian source said there had been no progress in talks to revive the June interim deal, with shipping attacks continuing to weigh on energy supply.

US Treasury yields extend pullback as in-line CPI removes near-term Fed hike pressure

• The 10-year yield held at 4.65%, extending its retreat as both headline and core July inflation came in as expected, easing pressure on the FOMC to hike in September.
• Multiple FOMC members had delivered hawkish dissents at the last meeting and signalled hawkish reaction functions in subsequent speeches, reflecting the cumulative impact of energy-driven inflation since the Iran war began.
• Elevated energy prices continue to feed into price indices as Trump hardened his stance on Iran, with Tehran dismissing any imminent suspension of the Hormuz blockade.
• Concerns that the Fed may delay action on inflation had already driven long-end yields sharply higher earlier this month, with the pullback contingent on energy prices remaining contained.

US Dollar eases to 99.9 as in-line CPI reduces urgency for near-term Fed rate hike

• July CPI rose 0.1% month-on-month and 3.4% year-on-year, while core inflation matched its slowest annual pace since March 2021 at 2.5%, broadly meeting expectations.
• Combined with last week's weak jobs report, the softer inflation reading could ease pressure on the Fed as policymakers balance price stability against rising employment risks.
• Trump claimed the US had "total control" of the Strait of Hormuz as Washington and Tehran remained locked in negotiations over its reopening, keeping geopolitical uncertainty elevated.

Oil edges up marginally as shipping attacks offset demand downgrades and inventory build

• Brent settled at $88.98/bbl, up just 7 cents, and WTI at $83.27, up 7 cents, as supply disruption fears balanced against bearish demand and inventory signals.
• Iran told Reuters there are no ceasefire extension discussions with the US, as Tehran views the June deal as having no start date and therefore nothing to extend, deepening the impasse.
• Strait of Hormuz vessel traffic fell to a one-week low of eight on Tuesday, compared with a pre-war daily average of 125-140 vessels, with attacks continuing on both Hormuz and Bab el-Mandeb shipping.
• OPEC cut its 2026 world oil demand growth forecast to 580,000 bpd, while the IEA projected a 1.6 million bpd demand contraction and a 4.3 million bpd supply drop, resulting in a 2026 deficit of 1.27 million bpd.
• Analysts flagged uncertainty over how much demand destruction is temporary versus permanent, noting Asian refiners have cut runs due to crude supply constraints from the Hormuz closure.
• US crude stocks posted their largest weekly build since January 2023, driven by unusually weak exports and a surge in imports, adding further downward pressure on prices.

Day’s Ledger*
Economic Data

• UK June GDP
  
• Euro Zone June Industrial Production
  
• US July PPI
  
• US weekly Jobless Claims Data

Corporate Actions

• Earnings: Bajaj Hindusthan Sugar, CESC Limited, Fino Payments Bank, General Insurance Corporation of India, Godrej Industries, JSW Cement, Max Financial Services, Reliance Communications, Tata Motors Passenger Vehicles
• JSW Cement Limited to consider fundraising

Policy

• FOMC Member Barkin Speaks
  

Tickers to Watch

• BAJEL PROJECTS bags an EPC order worth over 6 billion rupees under the WR-ER Inter-Regional Network Expansion Scheme, expanding its order book in the power transmission segment.
• POONAWALLA FINCORP approves the issuance of non-convertible debentures worth 7.5 billion rupees to support its funding requirements and business growth.
• DILIP BUILDCON fixes September 15 as the record date for determining shareholders eligible to receive the dividend announced by the company.
• GMR AIRPORTS approves fundraising of up to 50 billion rupees through QIP, bonds and other permitted instruments, including up to 15 billion rupees through non-convertible bonds.
• RELIGARE ENTERPRISES appoints Arjun Lamba as Managing Director, strengthening its leadership team as the company continues to focus on its business operations.
• WAAREE ENERGIES says UltraTech Cement will acquire a 26% stake in its arm Solaris for around 0.28 billion rupees as part of the proposed transaction.
• JIO FINANCIAL SERVICES enters into a JV agreement with Bank of America, under which BofA will acquire up to a 49.9% stake in arm Jio Credit for 182.68 billion rupees.
• RAJ RAYON INDUSTRIES approves a 6.5 billion rupees Phase-II expansion at its Silvassa unit, aimed at increasing the company's manufacturing capacity.
• INDIAN HOTELS receives an additional penalty of 0.055 billion rupees from BMC, taking the total penalty imposed by the civic body to 1.03 billion rupees.

Must Read

• Tata’s Listed Wealth Cannot Wait on a Private Deadlock
• At Tata, One Old Order Gives Way to Another
• The Growing Opacity in India's Infrastructure Data
• Grown, Not Drilled: Ethanol Could Be India’s Most Exportable Idea
• India's Critical Minerals Ambitions Remain Underground

(*Compiled from various media sources)

See you tomorrow with another edition of The Morning Edge.

Have a great trading day